Brief Equities Bottom-Up: SGP: Ready for New Growth Cycle and more

In this briefing:

1. SGP: Ready for New Growth Cycle
2. Sea Ltd: Further Share Re-Rating After a 35% Daily Gain? Why Not?

1. SGP: Ready for New Growth Cycle

We initiate coverage of SGP with a BUY rating and a 2019E target price of Bt14.00, derived from 10.9x PE’19E, which is +0.5 SD of its 3-year trading average. We believe that a new growth cycle is poised to act as a re-rating catalyst.

The story:

• Regional LPG player with upstream transportation network
• New businesses to drive new growth cycle
• LPG price set to bottom out
• Expected earnings to recover in 2019E

Risks: 

             Currency  fluctuation

             Raw material price fluctuation

             Overseas investment failure

2. Sea Ltd: Further Share Re-Rating After a 35% Daily Gain? Why Not?

• The biggest positive surprise from Sea Ltd’s (SE US) conference call is strong 2019 adjusted sales guidance: 82%-97% YoY growth for Garena (digital entertainment division) and 117-127% YoY growth for Shopee (e-commerce arm).
• Management expects first positive quarterly EBITDA for Shopee Taiwan operations in 1Q19, indicating there is a path to profitability for Shopee’s business model.
• Another great news: management expresses high confidence that Shopee’s S&M expenses in terms of absolute dollars would trend down in 2019, vs. 2018.
• After a 35% daily share gain on 27 Feb, SE trades at 4.1x 2019E P/adjusted revenue excl. 1P sales, yet still a whopping 49% discount to Pinduoduo’s (PDD US) 8.1x P/S.